Saturday 08 Feb 2025
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KUALA LUMPUR (Dec 19): The government’s proposal to introduce a Diagnostic-Related Group (DRG) payment system to regulate private healthcare costs may face significant challenges and feasibility issues, according to Hong Leong Investment Bank (HLIB).

The research house noted that this transition diverges from global practices, raising concerns about its feasibility within Malaysia’s private healthcare framework.

“We believe the benefits of the payment system could not be fully achievable within the existing private healthcare system,” said HLIB in a report on Thursday.

Citing the World Bank and the World Health Organisation (WHO), HLIB noted that the DRG system is primarily designed for national health insurance (NHI) programmes that offer “standardised” services.

“In such systems, participating hospitals are typically public or non-profit private entities, which may receive subsidies to manage cost overruns,” said HLIB.

In contrast, Malaysia operates a private health insurance (PHI) model, where benefits and coverage vary significantly based on premiums paid.

According to HLIB, this discrepancy could be unfair for those paying higher premiums to receive the same level of care as those with lower premiums. 

HLIB also noted that cost structures among Malaysia’s private hospitals vary widely, influenced by factors such as room configurations, staff-to-patient ratios, and adoption of advanced medical technologies.
 
Hence, a standardised payment model under the DRG system could incentivise hospitals with higher operating costs to cut corners, discharge patients prematurely, or selectively admit low-cost cases, the research house warned.

Analysts cautioned that while the DRG system aims to standardise pricing and control medical inflation, its adoption could lead to unnecessary costs borne by taxpayers without delivering the intended benefits. 

On Dec 10, the government announced the DRG payment system as a potential replacement for the fee-for-service model to address rising medical costs.

However, the announcement triggered a negative market reaction, with the share prices of major hospital operators KPJ Healthcare Bhd (KL:KPJ) and IHH Healthcare Bhd (KL:IHH) falling by 9.2% and 3.2%, respectively, the following day.

Looking ahead, HLIB anticipates that the government may repurpose the DRG payment system as part of a future national health insurance (NHI) scheme, which aligns with global practices outlined in the Health White Paper.

While the timeline and execution of the NHI remain uncertain, “we believe the DRG-related regulatory overhang could gradually subside after stakeholders engage in more in-depth discussion and cost-benefit analyses,” said HLIB.

Despite these regulatory challenges, HLIB maintains an “overweight” stance on Malaysia’s healthcare sector for 2025, supported by resilient growth drivers and an IPO-led re-rating.

Notably, upcoming initial public offerings (IPOs) from Asia OneHealthcare (formerly Columbia Asia Healthcare) and Sunway Healthcare, expected by 2026 or earlier, could further uplift the sector.

IHH Healthcare remains as HLIB’s top pick with a target price of RM9, as analysts believe its share price will exhibit greater upside in the event of an IPO-led re-rating, while citing the group’s strong operational and financial metrics, which are comparable to those of Sunway Healthcare Group.
 

Edited ByIsabelle Francis
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